Back to the Past: Re-Measuring the Levels of Strategic Orientations and Their Effects on Firm Performance in Turkish Family Firms: An Updated Empirical Study

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Procedia - Social and Behavioral Sciences 41 ( 2012 ) 288 – 295

doi: 10.1016/j.sbspro.2012.04.033

*Corresponding author. Tel. + 90-532-546-5664 E-mail address: ealtindag@beykent.edu.tr

International Conference on Leadership, Innovation and Technology Management

Back to the Past: Re-Measuring the Levels of Strategic

Orientations and Their Effects on Firm Performance in

Turkish Family Firms: An Updated Empirical Study

Erkut Altindag

a

_{, Cemal Zehir}

b

a_{Beykent University, Istanbul, 34396, Turkey} b _{Gebze Institute of Technology, Kocaeli, 41400, Turkey}

Abstract

Three years ago now, a special research was developed to evaluate strategic orientations levels on family firms’ performance in Turkey. This episode contained six different strategic orientations including market, innovation, relationship, customer, learning and entrepreneurship. After three years, a revised survey in same context has performed on Turkish family owned firms in different sectors. To adapt today’s conditions and work’s scientific strength, three of strategic orientations are removed from the running. This revised and updated study will try to explore the relationship between effects of strategic orientations levels on firm performance and the family firms in Turkey again. The new outputs and their inter-relationships will be released and discussed in the conclusion section.

Keywords: Family firms, strategic orientations, empirical stud, market orientation, innovation orientation, entrepreneurship orientation

1. Introduction

While there’s a rapid change in the competitive markets, companies are trying to adapt to this change to get sustainable advantage against rivals. Main goal of the strategic management process is to achieve the performance outcomes that allow firms, including family-influenced firms, to be competitive over time [1]. Family-owned businesses significantly impact to economy and the social life of a nation. The typical family business has been characterized as an organizational controlled and usually managed by multiple family members In general, management structure in the family business will determined by the top level manager. Usually at least two generations of family are found in corporate governance. © 2012 Published by Elsevier Ltd. Selection and/or peer review under responsibility of The First International Conference on Leadership, Technology and Innovation Management

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Spouse, siblings, and mother / father and child in the definition of the family company enter partnerships [2], [3]. Family firms often have concentrated ownership and / or voting rights that might enhance performance. Family businesses may offer particularly appealing circumstances for studying certain kinds of organizational phenomena [4]. This essay critically traces the effect of several strategic orientations such as innovation on family firm’s performance. This paper begins by literature review; it will then go on to methodology section. The last chapter assesses the final conclusion.

2. Literature Review

2.1 Family-Owned Firms

The literature on family business is wide-ranging and it is difficult to find consensus on the exact definition of a family firm. However, the typical family business has been characterized as an organization controlled and usually managed by multiple family members, often from multiple generations [2], [3], [5], [6]. Most of the research projects studying goals in family firms compare the goals of these types of firms to those of non-family firms in order to detect significant differences. Results in relation to this subject are mixed. In family firms, goals related to family roles tend to be far more important than the traditional firm-value maximization goal [7]. Among those important family roles are survival, financial independence, family harmony and family employment [8], [9], [10]. Moreover, family firms are described as being more risk-averse and less growth-oriented. They focus less on technology, creativity and innovation [9]. However, most of the family firm managers believe that they are operating in a hostile external environment [10]. Family firms can be viewed as a contextual hybrid, a unique combination of two sets of rules, values, and expectations: the family's and the business' [11], [12], [13] [14]. Family firms share certain characteristics that render them unique in terms of patterns of ownership, governance, and succession [15]. For instance, owner-families share the desire for ownership control and the continuity of family involvement in the firm. To fully appreciate these special characteristics, it is crucial to focus on family firms where the family is likely to have considerable impact on entrepreneurial activities. We therefore define family firms as firms where one family group controls the company through a clear majority of the ordinary voting shares, the family is represented on the management team, and the leading representative of the family perceives the business to be a family firm [16].

2.2 Market, Innovation and Entrepreneurship Orientation

Market orientation is a centrally important idea to marketing and a growing number of fields. Although the concept of market orientation has received considerable attention, how organizations develop a greater market orientation has received little attention. Research in marketing has identified the characteristics of market-oriented organizations [17]. Market orientation is a foundation of marketing and is increasingly important in other fields, such as strategic management. However, how organizations

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change to become more market oriented has received less attention. In this article, the authors conduct an in-depth, longitudinal, multiform investigation of firms that have successfully created a market orientation. The concept of a market orientation has become increasingly important to the study and practice of management. By the way, research on market orientation has not incorporated the notion of power. Therefore, it implicitly assumes that all individuals within the organization share a common goal [18]. For example, market orientation is a foundation of marketing and is increasingly important in other fields, such as strategic management [17]. Speed of technological change is rapid in many global markets. Especially family firm-based companies have to adopt this turbulent environment as an organic organization. Innovation-oriented firm focuses on developing key organizational competencies in resource allocation, technology, employees, operations and markets. Most prior innovation research has focused on factors that affect innovations, primarily rate, speed and benefits [19]. Most definitions concur first and foremost that innovation orientation is a learning philosophy in which firms have common standards and beliefs about learning and knowledge that pervade and guide all functional areas toward innovation. Family or non-family firms innovate in several of ways, including business models, products, services, processes, and channels to maintain or capture markets, to outdistance competitors, and to assure long-term growth and survival, especially in highly complex and turbulent environments [20]. In the literature and organizational context, innovation may be linked to performance and growth through improvements in efficiency, productivity, quality, competitive positioning, market share, etc. All organizations can innovate, including for example hospitals, universities, and local governments. A convenient definition of innovation from an organizational perspective is given by Luecke and Katz [21], who wrote: “Innovation is generally understood as the successful introduction of a new thing or method; innovation is the embodiment, combination, or synthesis of knowledge in original, relevant, valued new products, processes, or services.” An innovation-oriented knowledge structure is a set of organization-wide shared beliefs and understandings that guide and direct "all organizational strategies and actions, including those embedded in the formal and informal systems, behaviours, competencies, and processes of the firm" [19]. Most prior innovation research has focused on factors that affect innovations, primarily rate, speed and benefits. More recent research has examined innovation as a system-based, firm-wide orientation toward innovation. Along with this broader perspective comes a need for understanding outcomes of the orientation, both positive and negative.The innovation literature to date has largely relied on a handful of specific, readily calculated outcomes of innovation, with few studies examining the link between a more comprehensive innovation orientation and its organizational effects [22]. Finally, innovation orientation is most often erroneously defined in terms of innovation outputs, usually in numbers of new products and processes. In the literature, entrepreneurship is viewed as a learning and selection mechanism that engenders exploratory and risk-taking behavior in new product development [23]. Internal control systems are the most important mediating factors through which firm orientation affects the degree of improvement in new product development, and they can powerfully ensure that a firm's new product development activities are completed in ways that lead to the attainment of the organization's goals Unfortunately, we have little knowledge about how both entrepreneurship and market

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orientations affect the degree of improvement of new product development through internal control systems [24].

2.3 Firm Performance

Each strategic orientation has various effects on growth and profitability performance in family based businesses. In various studies, the positive way strong relationships were found between the active return rate, growth in sales, new product success, increasing market share and profitability performance indicators [25]. In this research, family business’ financial and growth performance are tried to analyse by managers or chiefs’ perspectives. Firm performance is connected to effective use of performance measures in a family firm. Nowadays, time-based competition strategy, focusing only on process standards that are not time and reduce preparation time, labor and delivery time, the flexibility to stay connected to the high quality products produced highlight capabilities requires the performance criteria [26].

3 Methodology

In order to create a systematic empirical research, previous article references were searched further for additional relevant publications. Based on previous literature [24], [25], [27] and with support of the strategic management literature, these hypotheses are designed:

H1: There is a positive, significant and direct relationship between market orientation and firm

performance

H2: There is a positive, significant and direct relationship between innovation orientation and firm

performance

H3: There is a positive, significant and direct relationship between entrepreneurship orientation and

firm performance

For the purpose to empirically investigate the hypothesis that utter research questions of the study family-owned firms a questionnaire survey was been performed in the Marmara region. A database has been consisted with 300 questionnaires that collected from 143 family owned firms. All survey items were measured on a seven point Likert-type scale where 1= strongly disagree and 7= strongly agree. Final data set is analyzed by SPSS 16.0 statistical program. During the process, the relationships between the all variables are tested using factor, reliability, correlation and regression analyses. The items of the independent factors are constructed by establishing common variables of orientations which used in previous researches. All constructs were measured with existed scales from previous literature. The first of these variables is the market orientation. Other instrument designed by Li, Liu [24], was used the

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measure the construct of entrepreneurship orientation. The third variable is innovation orientation. This instrument is modified by Hurley and Hult [28]. After certifying the reliability of the scales, the relationships between the variables are tested using factor, correlation and regression analyses. All questions are tested for linguistic and meaning errors and it’s controlled by Brislin’s back-translate method for the translation of questionnaires [29]. In this empirical research, all items and components are tested by comprehensive reliability analyses at the first step. It’s analyzed the alpha reliability test (Croanbach test). The scale structure that was obtained with factor analysis was evaluated with the Kolmogorov-Smirnov test which is statistic quantifies a distance between the empirical distribution function of the sample and the cumulative distribution function of the reference distribution, or between the empirical distribution functions of two samples, and it was seen that t values of all of the variables were at the sufficient level for our sample that prove that the distribution of the data is statistically normal in our research. At next step, it’s examined the “corrected inter-item correlations” and “squared multiple correlations” in the item analysis stage. It was found that, resulting values of all items were 0.500 and above. Subsequent to reliability and correlation analyze, it is determined the factor structures by basic component analyze. After the process of testing reliability and the factorial structure, correlation analysis of the research questions was begun with the purpose of examining the mutual relationship among the factors considered in our research model. To obtain by dividing the covariance of the two variables by the product of their standard deviations, the correlation analyses have used (Table 1).

Table -1: Correlation Matrix

1 2 3 4 Cronbach’s Alpha Market Orientation 1,000 0,862 Innovation Orientation ,470** _1,000 _0,887 Entrepreneurship Orientation ,358** _,655** _1,000 _0,851 Firm Performance ,235** _,457** _,303** _1,000 _0,927 p*< 0,05; p**<0,01

Results of correlation analysis reveals that all constructs which differed from each other as a factor are also correlated each other positively and significantly. The other major point is about the business performance factor is evaluated into two components. Growth performance includes the enhancement rate of employees, profitability, products and services. The other component is financial performance of the family firm. It has various ratios including total sales, profits before taxes, equity/profitability in the scale.

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Table -2: The Effects of Strategic Orientations on Business Performance Model 3 Variables β T p Market ,002 ,043 ,966 Innovation ,330*** _6,105 _,000 Entrepreneurship ,030 ,441 ,660 Dependent variable: Business Performance. p*< 0.05; p**<0.01; p***<0.001

At the next step, the linear relationship is tested with regression analysis. There are some findings hat support the innovation orientation directly, positively and significantly affect the firm’s performance (β: 0.330***_{). Innovation may be linked to positive changes in efficiency, productivity, quality, competitive}

positioning, market share, etc. can all be affected positively by innovative forces. This consequence is linked to the importance given to innovation by managers. There is no doubt for innovation; it directly affects the performance criteria as a whole. When an innovative idea requires a new business model, or radically redesigns the delivery of value to focus on the customer, a real world experimentation approach increases the chances of market success in the dynamic markets. On the other hand, the correlation analyses show the direct relationship between all strategic orientations and firm performance. In the regression analyses, innovation orientations overshadowing the others; this unexpected output will be discussed in the final section. Relations of three orientations with firm performance are shown as the following model:

β = ,330***

Figure-1: The final model of the research 4. Discussion and Conclusion

In this research, it’s focused on the effect of strategic orientations on the family owned firms’ general performance. The results of this study indicate that innovation orientation is implementing by

Market Orientation Firm Performance Innovation Orientation Entrepreneurship Orientation

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Turkish family firms to achieve sustainable competitive advantage. Effects of strategic orientations evolve over time and that it is the implementation of the strategy which is truly important, rather than the classification of the strategic type. It may be possible for other strategic types to improve performance by altering their strategy profiles to be more aggressive, more focused, more thoughtful or time-consuming when implementing decisions. In conclusion, this study reveals that strategic orientations are chosen by family controlled firms to increase firm performance in Turkey. Family companies with different business orientations are compared according to their performance. We find clear evidence that the improvements in innovation orientation are tending to affect the firm’s financial and growth performance. In this research, it’s specified that innovation orientation is connected to firm’s performance’s elements as profitability, revenues before taxes, growth rate in the market, employee number, new customers, innovative products or services and financial success. For instance, the success of innovative output affects to firm’s competitive advantage in a turbulent market. That might be what the reason of some family firms are successful. Hereby the examined orientations must be used together as a combination of success. Our study is an important step in validating the relationship between strategic orientations and firm performance. Also it provides that Turkish family firms are solicitous to use modern management theories in their structural organization. In the findings in replications of our research support our findings, the message to the family firm managers is clear. In the competitive market, family firms must evaluate their performance and choose a suitable strategic orientation to achieve competitive advantage strategy. Market and entrepreneurship orientations are affecting the firm’s performance alone. A combination of strategic orientations may shadow themselves and their benefits.

The current investigation was limited by various causes. Family owned-firms differ on a range of dimensions and it is possible that different types of family firms show different patterns in terms of all orientations. Our data consisted of Turkish family firms and inference to other countries should be made with caution. National culture and tradition may influence especially customer and market orientation, which has implications for the generalizability of our findings. In contrast, responses from more individuals within the firms would have given a more complete picture of the firm's situation and behavior. Also our contributions to family business research open up possibilities for future research. Survey data consisted of Turkish family firms and inference to other countries should be made with caution. National culture and tradition may influence especially relationship orientation, which has implications for the generalization of our findings. Lastly, a well-designed and extended survey can be considered to evaluate the mediating effect of innovation orientation on other orientations.

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